Hi, I need some assistance using Excel to complete the following:
First identify or calculate the capital spending, the operating cash flow, the change in net working capital, and finally the free cash flow to the firm of the project. Free Cash Flows are cash flows available to the firm after stakeholders have been paid (interest and dividends). It is these free cash flows that you find that are discounted at the weighted average cost of capital to calculate the net present value and the internal rate of return.
You will assess whether to make the investment or not. Use your accept-reject rules for the net present value and the internal rate of return.
Redbird, Inc. is considering an addition to its current operations. The figures are below.
Cost of the new project:
Estimated unit sales in year 1
Estimated unit sales in year 2
Estimated unit sales in year 3
Estimated sales price in year 1
Estimated sales price in year 2
Estimated sales price in year 3
Variable cost per unit
Annual fixed cost
Initial working capital needed
Additional Working capital needed
- 5 % of sales
- 5 years straight-line method, no salvage value
Redbird's tax rate
Redbird's cost of capital
Calculate Operating Cash Flow, change in Net Working Capital, and calculate Free Cash Flow. Show your calculations in a Word document or an Excel spreadsheet. Determine the NPV and IRR of the project. Show your calculations in a Word document or an Excel spreadsheet. Assess the project. Be sure to state the basis upon which you made your option choices. You should prepare a one-page executive summary of your findings, with 3-5 pages of supporting analysis.
The following posting helps with corporate finance calculations such as capital spending, operating cash flow and net working capital.